Economic news continues to flow in as the Democratic Convention begins with a critical employment report due on Friday.

All of the news is bad --

Manufacturing

U.S. manufacturing shrank at its sharpest clip in more than three years in August while U.S. construction spending in July fell by the most in a year, new reports showed on Tuesday.

The Institute for Supply Management said its index of national factory activity fell to 49.6 in August from 49.8 in July.

The reading fell shy of the 50.0 median estimate in a Reuters poll of economists. A reading below 50 indicates contraction in the sector.

The index's employment component fell to 51.6, the lowest since November 2009, from 52.0 in July.

New orders, a forward-looking sub-index, fell to 47.1 in August, the worst showing since April of 2009. It stood at 48 in July.

Construction spending is down in all areas

U.S. construction spending in July fell by the most in a year as both the private and public sectors cut back on investment, according to a report that could dampen hopes of a pick-up in economic activity in the third quarter.

Construction spending dropped 0.9 percent to an annual rate of $834.4 billion, the lowest level since April, the Commerce Department said on Tuesday. The decline was the first since March and followed an unrevised 0.4 percent rise in June.

Private construction dropped 1.2 percent, also the largest decline since July last year.